Wells Fargo wins Wachovia battle

Wells Fargo & Co. has won the battle for Wachovia Corp.

Citigroup Inc. has withdrawn from negotiations brokered by regulators that sought a compromise to the competing bids from Wells and Citigroup. The issue is likely to go to court, but New York-based Citigroup (NYSE:C) says it will no longer seek to block Wells’ proposed $15.1 billion stock purchase of Wachovia.

“We believe that is the correct and right decision for our country and our citizens and the health of our already stressed financial system, as well as our and Wachovia’s respective shareholders and stakeholders,” Wells Fargo Chairman Dick Kovacevich said in a statement.

Kovacevich didn’t address the pending action for damages. But he did address, at least indirectly, reports Thursday indicating Citigroup and Wells, whose mortgage division has three branches in Central Ohio, had both found more problems in Wachovia’s mortgage portfolio than expected.

“Credit teams at Wells Fargo have had an opportunity to work with their counterparts at Wachovia,” Kovacevich said. “Given our broad-based operating expertise, and specific understanding of these individual businesses we believe we have adequately evaluated the risks inherent in the portfolios as of the time of this merger agreement.”

The combined company will have $1.42 trillion in assets, $787 billion in deposits, 48 million customers, $258 billion assets under management in mutual funds, 10,761 offices, 12,227 ATMs and 280,000 employees.

Citigroup still plans to seek damages for Wachovia’s decision to choose San Francisco-based Wells (NYSE:WFC) over an earlier agreement to sell banking operations to Citigroup for $2.1 billion.

“We did not seek the Wachovia transaction; Wachovia brought it to us,” Citigroup CEO Vikram Pandit said in a statement.

In a statement Thursday evening, Charlotte, N.C.-based Wachovia (NYSE:WB) said it looks forward to closing the deal with Wells, which “we have always believed is in the best interest of shareholders, employees, creditors and retirees as well as the American taxpayers, and it imposes no risk to the FDIC fund.”

Under the earlier agreement, Citigroup would have absorbed up to $42 billion of losses on a $312 billion pool of loans. The Federal Deposit Insurance Corp. would have absorbed losses beyond that.

Christina Pretto of Citigroup said the bank will seek the $60 billion in damages it has claimed from the deal gone sour. That case will proceed, she says, in New York Supreme Court.

Analysts trace Wachovia’s troubles to its 2006 purchase of Golden West Financial Corp., a thrift based in California. Golden West was a major player in a class of adjustable-rate mortgages that have proved particularly troublesome in the credit crisis.

Wachovia had about $122 billion, or 70 percent of its mortgage portfolio, in those mortgages, analysts recently said.


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